“Cash Hoarding” is a Symptom of Managerial Decision-Making Paralysis

The Governance Code Revision Illuminates “Cash” as a Trace of Decision-Making

In April 2026, Japan’s Financial Services Agency published a draft revision to the Corporate Governance Code, explicitly stating that addressing “excessive holdings of cash and deposits” is a key supervisory matter for boards of directors. This highlights a deeper management issue that goes beyond the mere financial problem of “having no use for the money.”

This issue is often discussed in the news from the perspective of pressure from institutional investors and capital efficiency. But for you, a manager of a small or medium-sized enterprise (SME), is this someone else’s problem? Is it only a concern for listed companies?

The answer is no. On the contrary, for SMEs, which face relatively less external scrutiny, this “cash hoarding” is the most visible symptom of a quiet disease eroding the very foundation of management: “decision-making paralysis.” Using the governance code revision as a starting point, this article shares concrete methods, drawn from practical experience with over 38 companies, to diagnose and improve your company’s “decision-making quality.”

Cash is Merely the “Result of Deferred Decisions”

First, let’s change a fundamental perception. The cash and deposits piling up on the balance sheet are not the “result of actively saving,” but the “accumulated residue of deferred decisions.”

The reason “to prepare for future uncertainty” seems plausible at first glance. However, what specific risks is this “preparation” for, with what probability, and when are they anticipated? Furthermore, is “holding cash” the optimal choice for those risks? If you cannot answer these questions clearly, it is nothing but an abdication of decision-making.

The president of a mid-sized manufacturer (annual revenue of approximately $33 million USD) I supported said this: “It’s true we have about $20 million USD in cash. We want to invest in equipment, but we don’t know the ‘optimal investment target.’ If we make a mistake, it’s irreversible. As a result, doing nothing feels safest.” What exists here is the error of viewing the risk of “the possibility of failure” (a world of 1-99) through the lens of “must absolutely not fail” (0/100 thinking). Cash is the visible “trace” of this mental stagnation.

Three Questions to Diagnose Your Company’s “Decision-Making Paralysis”

To check if “decision-making paralysis” is lurking in your company, try this self-assessment with the following three questions.

1. Are at least three alternatives always compared for major investment decisions?

Has it become a binary choice of “build a new factory or not”? In sound decision-making, at least three alternatives are always on the table. For example, Option A: “Build a new factory in-house,” Option B: “Lease and utilize another company’s idle equipment,” Option C: “Outsource part of the manufacturing process and focus on improving efficiency at the existing factory.” When there are only two options, thinking has already fallen into a “do/don’t do” dichotomy, and risks can only be seen as 0 or 100.

2. Is there a “comparative record” of past important decisions?

When you decided on a major capital investment three years ago, why did you choose Option B over Option A? Is the reason, along with the disadvantages of the considered but rejected options, recorded in a way that a third party can understand? In many SMEs, only the decision (the conclusion) remains in the minutes, and the decision-making “process” is buried in darkness. This leads to repeating the same mistakes, and decision-making quality never improves.

3. How many decisions have a predetermined “exit condition”?

Do you set clear “exit conditions” (or “success conditions”) at the point of decision-making, such as: “We will exit this new business if cumulative losses exceed approximately $33,000 USD after three years”? A common trait among managers suffering from decision-making paralysis is viewing “changing a decision” as “losing” or “failing.” By setting conditions in advance, flexible course corrections in response to changing circumstances become “part of the plan,” dramatically lowering the barrier to decision-making.

From “Cash” to “Decision-Making Quality”: Practical Improvement Steps

For those who feel improvement is necessary based on the diagnosis. Don’t try to change the entire company’s decision-making process all at once; start small.

Step 1: Introduce a “Decision-Making Record Sheet” (One-Page Format)

Start with the next small-scale investment project worth tens of thousands of dollars (e.g., replacing one sales vehicle, introducing new software). Create a dedicated “Decision-Making Record Sheet” and fill in the following items:

• Decision Item: What is being decided.
• Options A/B/C: List at least three alternatives (including “maintain status quo” as one option).
• Pros & Cons of Each Option: Both quantitative and qualitative aspects.
• Selection Criteria: Why this option was chosen. What was the deciding factor.
• Exit/Review Condition: Under what circumstances would the decision be changed.

Share and discuss this sheet not only with the decision-maker but also with relevant team members. The format forces structured thinking, naturally helping you break free from the “do/don’t do” dichotomy.

Step 2: Establish Regular “Decision-Making Review” Meetings

Set up a short quarterly meeting to review the major decisions made in the past three months (those with record sheets). The purpose is not to judge “whether the outcome was good or bad,” but to verify “whether the decision-making process was appropriate.”

“Were the alternatives sufficient?” “Did any unforeseen disadvantages emerge?” “Were the exit conditions appropriate?” This review is the only way to evolve an organization’s decision-making capability. Even if the outcome was poor, if the process was sound, it can be positively viewed as a “learning cost.”

Step 3: Redefine the “Role of Cash” in the Context of Decision-Making

Finally, return to the cash on the balance sheet. Under the improved decision-making process, ask again: “What ‘future option’ is this cash securing as an option fee?”

For example, if it is “to respond immediately to potential M&A opportunities within the next three years,” that is a clear decision. In that case, the amount should be calculable backwards from the “anticipated scale of M&A.” Or, if it is “to secure three months of liquidity against unexpected supply chain disruptions,” that is also a strategy.

The key is to eliminate vague reasons like “for a vague sense of security” and position all assets as “resources to enable specific future decisions.” This is the essential, practical form of “improving capital efficiency” that the governance code seeks, tailored for SMEs.

When Decisions Change, Cash Turns into “Fuel”

The revision of the Corporate Governance Code is not simply about pressuring large companies to “return more to shareholders.” It is an external challenge questioning the quality of decision-making, which is the essence of management: “resource allocation under uncertainty.”

The strength of SMEs lies in the speed and flexibility of their decisions. However, without a process to enhance the “quality” of decision-making, that speed degenerates into mere “rashness,” and flexibility into “lack of planning.” The accumulating cash might be a dangerous sign of this.

Start by using the “Decision-Making Record Sheet” for your next small purchasing decision. The form of thought changes the quality of thought. And when high-quality decisions accumulate, the meaning of the cash on the balance sheet transforms from mere “residue” into reliable “fuel” for carving out the future.